Make it a must for S’pore companies to disclose content of earnings calls and analyst briefings

SINGAPORE - When companies plan to make a significant announcement, they will halt trading in their shares, post the information on Singapore Exchange’s website SGXNet and then lift the trading halt later.

This process is designed to ensure a level playing field for all recipients of the information so that no party or parties have an unfair advantage over others in the market.

The same underlying principle underpins all disclosures, and rightly so. Yet there is one grey area which exists – where material or important information may be inadvertently disseminated – which deserves closer regulatory scrutiny: analyst briefings or earnings calls.

After posting their results online, many firms subsequently conduct earnings calls, where senior management present the results and take questions from analysts and investors who have been invited to attend.

Companies also engage in analyst briefings – dedicated sessions conducted online or in person which are intended to provide deeper insight into performance, outlook and strategy.

The overarching rule is that companies should have policies and procedures to avoid selective disclosure during briefings or meetings with analysts and investors and if material, non-public information is inadvertently disclosed during a meeting, the company must promptly disseminate it through SGXNet.

The problem is that disclosure is needed only if material information is shared; otherwise it is not. However, what is material is debatable, as it is a matter of judgment.

Moreover, anecdotal feedback from industry practitioners who have attended some of these briefings is that management, in their eagerness to come across as engaging and transparent, have occasionally let slip important, non-publicly available insights which were not subsequently made public.

Granted, earnings calls allow management to explain their financial results and business strategies beyond what is prescribed in the financial statements. This can help investors interpret results correctly while also enhancing transparency and thus builds trust with the market.

Furthermore, companies that are doing well would quite naturally want analysts to cover their stocks favourably by sharing positive plans and forecasts, while those whose results are disappointing would want to take the opportunity to explain the reasons for the underperformance rather than let the market draw its conclusions from the figures alone.

Either way though, the biggest risk is unintentionally giving certain participants – usually analysts or large investors – material information that is not available to others in the market.

In the spirit of proper disclosure, some companies immediately post audio recordings of these meetings on their websites, an admirable practice that unfortunately is not widely adopted. According to industry observers, much depends on the individual company’s investor relations function, which means discretion and judgment once again enter the equation.

In order to enforce consistency, regulators should consider making it mandatory for the contents of all earnings calls and analyst briefings to be publicly disclosed as soon as possible after the conclusion of those events. That way, there is no need to wonder about whether the information is material or not.

In other words, the guiding principle when it comes to earnings calls and analyst briefings is the same that prevails in all other areas of a disclosure-based market – when in doubt, just disclose.